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5 Limitations of Real Estate Appraisals

Thinking of selling your home? Getting a paid for appraisal might be a great place to start determining your property value, providing you are aware of the limitations.

Pitfalls of Appraisals

An appraisal is an entirely theoretical exercise which is based on the application of a number of traditional approaches to establishing and calculating a home's value. The best an appraiser can do is to establish a “notional” value based on these principles.

Appraisers are most often called to apply these theories for the purposes of establishing: finance value, insurance value, tax value, value for estate planning and when a divorce is happening, a notional market value to allow one party to buy the other out.

Only the Market Can Dictate Actual Value

Market value is established in the real world by actually marketing a home for sale and discovering how the market, that is actual buyers, will respond.

An appraisal does not take into account other mitigating factors for example:

1. How long your home has been on the market?

A home that has been on the market for several weeks is already old news. The longer a house stays on the market the less leverage a seller has and the more leverage a buyer has. Buyers prefer to buy new fresh inventory as these are the exciting homes. Buyers will often expect a large discount if they pursue a home that has languished on the market.

2. How much competition do you have right now?

When markets are slower you will have more competition, ie there will be more choice for buyers. Buyer will naturally expect to be able to negotiate harder when there is more choice. The appraiser’s numbers look backwards. The market looks forward. You should speak to your Realtor® about the current direction of the market. Appraisers cannot factor in this information with any degree of accuracy.

3. What is the general mood of the market right now?

Market mood can change in a week or a month. Appraisals therefore quickly date themselves. The market also has seasons. Sometimes sales volume goes up and sometimes down. The same is true of sales values. Again you should speak to your Realtor® to better understand the mood of the market when you are ready to sell.

4. How skilled is your Realtor®?

The best Realtors® follow a logical critical path when marketing your home. Most don’t.

The best Realtors® are skilled negotiators who will help you look at an offer based on ALL of its merits not just the offer price. A good Realtor® will help you to understand the bigger picture.

It’s not always about price. An offer with a high price submitted by a buyer that cannot get the financing is worthless.

However, a lower offer from a buyer that has ALL cash could be much more valuable ie they can follow through, whereas the first buyer was only a pretender.

5. How effective is your marketing program?

Not all Realtors® offer the same level of marketing expertise. In the current market only about 50% of the listings put onto the MLS® System are selling. Why? Sometimes sellers have unrealistic expectations and sabotage their own success by not accepting market realities. This usually manifests in their holding out for a much higher value than the market will deliver. Sometimes it comes down to your choice of Realtor® program. We have created a check list to help you find the best program.

The best marketing programs incorporate a great website, and social media marketing including Facebook and Instagram, in addition to a traditional MLS® listing. You can check out our marketing by clicking on the above links.

Can we help you? We can assist you in purchasing ANY home or condo in the metro Edmonton market. And we will give you cash when you move in. For more information contact our broker owner Stuart Neal. He can be reached at 780-760-2014 ext. 3 or by email: stuart@ambergateadvisors.com.